A Loss on sale on assets will decrease cash flows True False
A Loss on sale on assets will decrease cash flows
True
False
Statement of Cash Flows:
Statement of Cash Flow is one of the main four financial statements, including Balance Sheet, Income Statement, and Statement of Stockholders' Equity. It is the only statement that is prepared on a Cash Basis, the rest all the statements are prepared on Accrual Basis. This statement helps to compute the actual cash flow from the business during the accounting period.
It helps in differentiating the cash flows from three different activities, they are:
1. Operating Activities
2. Investing Activities
3. Financing Activities
Operating Activities:
Under this activity or section, the cash flow is calculated from the main operations of the business. It involves the revenues and activities received through the operating section of the business. These cash flows can be calculated using two different methods, the Direct Method and the Indirect Method.
Under the Indirect Method, we will first take into account the Net Income of the business, add all the non-cash expenses, losses incurred from non-operating activities, and deduct the gain from non-operating activities. Then, we will consider the changes from the current assets or liabilities during the accounting period which will also be converted into a cash basis from an accrual basis.
Investing Activities:
This section or activity involves, cash used or generated by the purchase or sale of fixed assets or investments. In other words, this section focuses on the cash flow related to the acquisition and disposal of the company's long-term assets investments like a plant, property, equipment, etc. This section is reported separately so that the investors or the users of the financial statements could know whether the company is investing in the resources or whether it is disposing of the resources already owned.
Financing Activities:
Under this activity, cash generated and used for financing the business or for repaying the debts of the company is reported during the accounting period. It shows the cash inflows and outflows related to finance.
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